Best thing is to always be prepared

Sunday

Sep 30, 2012 at 12:01 AM

I'm going to address several topics in this column.

I'm going to address several topics in this column.

First, there was an article from Reuters written by Luke Baker that states that a determination of whether Greece would be able to carry its debts would be released by the International Monetary Fund around Sept. 28. There was a quote in the article that said "The Obama administration doesn't want anything on a macroeconomic scale that is going to rock the global economy before November 6th" and that this release would likely be delayed until after Nov. 6.

I guess this is why many people are concerned that these "free" markets are a little more managed than we thought they were. I also have to believe that the news probably can't be good or we would be hearing it ASAP.

The next story is about Spain. As it battles 25 percent unemployment (50 percent for those 25 and under) according to CNBC and numerous other sources, they are in a situation where they are tapping emergency funds in order to continue paying pensions to 8.1 million pensioners. In an article by Julien Toyer in the Financial Post (Reuters) there is speculation that its President Rajoy will likely make announcements about pension changes (higher age to retire and no increases in payouts to preserve the system longer) guess when — after the regional elections in October, Oct. 21 to be exact.

Finally, I was approached by a friend of mine who said that he had a savings plan with a major union that he wanted to get rolled over. He said he wanted to do that because he is concerned that since there is hardly anyone who is contributing to the plan anymore he was concerned that, as many people his age retired, the plan may become insolvent.

This is a regular guy who is just using common sense. Many people would do well to listen to the way he is thinking. As we look at many pension plans they are underfunded by a lot. Many companies have dissolved their pensions because of the costs of having defined benefits (Guaranteed pension payout) and replaced them with defined contribution (Guaranteed amount contributed by the company — no payout guarantee) or 401k type plans. Government is one of the few places that still offer defined benefit pensions. Companies were forced to abandon these plans because the costs were too high. If costs are too high for productive businesses, you can be sure they are too high for everyone else

Many years of above average returns helped the people running the plans become complacent and made them confident that they could likely continue paying out benefits by growing assets.

In the last few years it has been hard to get returns sufficient to generate a high enough return with interest rates currently at historical lows. This leaves regular folks and larger investors with a choice — less than desirable returns or invest in assets that only a few years ago they may have deemed to be a little more risky than they may have been comfortable with.

I believe that what a lot of people are saying with their actions is that as the Fed prints money and bids up prices, it is better to take risk and get some yield as opposed to getting virtually nothing and watching prices rise.

As we go deeper and deeper into debt to fund the lifestyle that we have become accustomed to, someone has to tell the reality. The truth is that we all have to become a little leaner, we need to work together and a little harder to put our country and the developed world back on a sustainable path.

Printing money out of thin air to pay bills we can't afford with our current production is a recipe for the next major crisis. Instead of getting our spending under control most central banks are kicking the can down the road and leading us deeper and deeper into debt. Eventually, the creditors are going to come knocking — the question is will they take the currencies that they were promised to be paid in at that time or will they demand real assets such as real estate, companies, oil, gas, precious metals, etc.

The endgame of this printing being undertaken by the central banks of the world to keep the party going a little longer may lead to a massive wealth redistribution with those positioned correctly winning big and the regular guy wondering "how did that happen here"?

Since we are in a position that is unprecedented in all of history where anything may happen all I can say is be prepared for any outcome.

Mike Savage is financial adviser and president of Savage Financial Group in East Stroudsburg, which offers securities through Raymond James Financial Services.

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